The 21st century KPIResource Productivity

Ory ZikVP of Analytics

5-10-2016

What was his KPI? Proteins / calories

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Credit:Orin ZebestCC-BY 2.0

Why did the sapience win?

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Die ersten Menschen, Weltbild Verlag, 2000. ISBN 3-8289-0741-5

Homo erectusWestfälisches Landesmuseum,

Herne, Germany

• The Neanderthals were stronger and had larger brains• Sapience won because of innovation and connectivity

30,000 years later: we dominate the planet

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• Still two forces: connectivity + innovation• No system thinking

http://geographical.co.uk/places/mapping/item/978-human-worlds

Business as usual, we will need three planets

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Source: Global Footprint Network

• Overconsumption, climate change and environmental degradation

Brands has leverage

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Filmed July 2010 at TEDGlobal 2010Jason Clay: How big brands can help save biodiversity

Jason Clay, WWF at TED 2010• Hundreds of companies control 70% of traded commodities between more than a

billion suppliers and nearly 7 billion people

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“There is one and only one social responsibility of business - to use its resources and engage in activities designed to increase profits.”

Source: university of colorado

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Financial vs. Sustainability

“..our last, our only chance to reach a destination that assures the preservation of the earth.”

Source: Kristenbaumlier

Measuring progress becomes a challenge

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CSOCFO

Oil <$30 / barrel

CO2 >400ppm

December 2015 COP21

How to convince the CFO?

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• Growth• Value at risk • Capital efficiency

Source: cafepress

CFO attention (1-5)

Commodity price ‘inflection point’ theory

• 33 commodities equally weighted• Theory: all the reduction in a century was erased in a decade due to scarcity• Practice: difficult to explain recent decline

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Source: GMO

CFO attention1

Internal price of carbon in leading companies

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• The straight line is $125/tonCO2 assuming oil is at $50/barrel and 0.4 tonCO2/barrel• It allows us to see the relative impact of the internal price of carbon on decisions

CFO attention1

Not growing as an option

• Patagonia’s 2011, New York Times ad: “135 liters of water.. warehouse generated nearly 20 pounds of carbon dioxide.. two-thirds its weight in waste”

• Led to 15% growth ever since

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CFO attention0

More CSR reporting is not leading to more insight

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• All inclusive approach: Environmental + Social + Governance• Unclear business metrics and KPIs• Data: Incomplete data (granularity) standards, confidentiality, validation

CFO attention1

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http://www.triplepundit.com/2014/07/despite-big-leaps-csr-still-long-way-go/

No correlation between sustainability and financial performance

Profit

CSR score

CFO attention1

• Challenging to find evidence that convince the CFO that sustainability is core to the business

What is the KPI that can bring the CFO and the CSO together?

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CFO CSO

?

21st century

Resource decoupling: maximize economic growth per resource use

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http://www.unep.org/resourcepanel/decoupling/files/pdf/decoupling_report_english.pdf

• Reduce the amount of resources used to produce financial growth• Develop a KPI that measures the decoupling

Resource productivity: a KPI that measures resource decoupling

• Resource productivity = $ / Resource use• How do we measure the denominator ?

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time

Economic growth Resource use Resource decoupling

timetime

Inflection point

2016?

The most quoted decoupling examples: Innovation, connectivity, and system thinking

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Source: IBM

• And when it happens, it is sudden (~2 years)

Resource Productivity Roadmap Rule #1: avoid value destruction

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Value creation

Value destruction

Resource productivity

Value destruction became crowded lately

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• VW lost $33 billion in valuation in less than 2 weeks• Recall cost $16 -$18 billion• CFO attention at 5 but not for defensive reasons

CFO attention5

Resource Productivity Roadmap: product innovation

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Value creation

Value destruction

Compliance ProductInnovation

Resource productivity

Low emission

A Tesla Moment

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CFO attention5

The Tesla is as green as the electricity charging it

• Tesla is better if charged with low carbon electricity • Only 5% buy Tesla for environmental reasons• Nearly all buyers would ‘green’ to be one of the features

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2015, 49 (22), pp 13692–13698

Resource Productivity Roadmap

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Value creation

Value destruction

Compliance ProductInnovation

ConnectivityResource productivity

Low emission

15% less navigation

errors

Resource Productivity Roadmap

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Value creation

Value destruction

Compliance ProductInnovation

ConnectivityResource productivity Business

model innovation

Low emission

15% less navigation

errors

Cars off the road

Resource Productivity Roadmap

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Value creation

Value destruction

Compliance ProductInnovation

Connectivity System innovation

Resource productivity

Shared and self driving

Business model innovation

Low emission

15% less navigation

errors

Cars off the road

Less cars, less errors and

low emissions

Who would reinvent the system?

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Value creation

Value destruction

Compliance ProductInnovation

Connectivity System innovation

Resource productivity

Shared and self driving

Business model innovation

CFO attention5

?

Resource Productivity is VW's bet back as they return to value creation

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?

• Volkswagen’s CEO: “plans to emphasis digital services and zero-emissions vehicles”

The Telegraph

Rule # 1 avoid value destructionA “Chipotle moment”

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Value creation

Value destruction

Compliance

Product innovation: A Chobani moment

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CFO attention5

https://prezi.com/qfr_gnwvd8tm/chobani/

• Greek Yogurt was 4% of the US Yogurt market in 2008. It is 44% in 2013 • Chobani was launched in 2009 and led the category ever since

Where should we look for the next Chobani moment?

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Value creation

Value destruction

ComplianceResource productivity Product

Innovation

Alternative proteins

Source for alternative proteins: Lux Research, “WhooPea: Plant Sources Are Changing the Protein Landscape”

Where should we look for the next Chobani moment?

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Value creation

Value destruction

ComplianceResource productivity Product

Innovation

Alternative proteins

Connectivity System innovation

Business model innovation

Mostly demand side innovation

Source for alternative proteins: Lux Research, “WhooPea: Plant Sources Are Changing the Protein Landscape”Source for food tech: foodtechconnect quoting www.leonmayer.com

The supply side may be as important

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The supply system may become a global network of plants and growers

• A connected network of growers. Each plant has a unique IP address• Still needs system thinking: energy, water, land, nitrogen• Can it scale using urban water supply?

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Source: OpenAg at MIT media lab

How will farm-servers load the energy and water systems (like server-farms and energy)?

• Server-farms grew from zero to 5% of the US electricity in two decades• What will be the resource demand of farm-servers?• What will be the impact on resources: the water-energy-food nexus?• Need a systems approach

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Source: National Geographic Source: https://www.pinterest.com/pin/180425528796565157/

Server farm Farm server

Israel Innovation Tour

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• 4 days, 14 startups, 8am-10pm agenda• Innovation in a constrained system

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Caesarea

Coal dock

Desalination

Caesarea, Israel March 2016

Roman Aquaduct

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Caesarea

Coal dock

Desalination

1 mile south

Water scarcity drove system thinking

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Desalination Pumping

Coal

20 kWh/kgal

2 kWh/kgal

• Water carrier• Desalination• Drip irrigation

Food as value-added water

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• A crate of oranges ~ cubic meter of water• Israel focus on high-end low-water crops reduced

orange exports

The US water pricing system is not built for scarcity

• The water pricing is ineffective now. On average 25% water losses• Once residential, commercial and agricultural water begins to mix, it will require a

system change

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CFO attention4

California: running out of cheap water

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• The variability in the price of water challenges planning• Land, nitrogen, energy and emissions add additional complications

The highly variable price and value of water in California

CFO attention4

So what should companies do?

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Resource productivity as a KPI: a systems approach

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Model the value chain

Identify hotspots

Benchmark

resources

Implement

innovation

Meat processing

Herd/Calfstage

Stockergrowth

Feedlotfinishing

Corn growth

Water pumping

Soybeangrowth

Electricity

Source of flow diagram: Lux Research 2015, “De-risking protein strategies using a systems approach”

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baseline

Beef - conventional

baseline

Beef - grass fed

baseline

Swine

baseline

Poultry

baseline

Salmon - net pen

baseline

Salmon - marine bag

baseline

Tuna

baseline

Dairy

baseline

Eggs

baseline

Soybean meal

baseline

Canola meal

baseline

Pea meal

baseline

Algae

baseline

Cricket meal

* Normalized by protein content and PDCAAS

The resource productivity of animal, fish, plant and alternative proteins

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9%

56%

5%

Resource productivity of crickets as percentage of beef per unit of digestible protein

• Significant energy consumption• Negligible agricultural water, land use and nutrient load

Optimize ingredient composition within food development

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The impact of various ingredients assuming equal mass

• As we optimize health, safety, cost food developers will be able to optimize resource productivity – per ingredient

The winner in food will deploy system level innovation

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Value creation

Value destruction

Compliance ProductInnovation

Resource productivity Connectivity System

innovationBusiness model innovation

CFO attention5

Analyzing consumption hotspots and mapping replacements

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Model the value chain

Identify hotspots

Benchmark

resources

Implement

innovation

Identify water intensive suppliers in water scarce areas Offer drip irrigation

CFO attention5

Resource Productivity

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• More Chobani moments are coming based on innovation and connectivity• The overlooked opportunity is system thinking on energy, water and land • The first step is resource productivity as a KPI

Lux Research Inc. 100 Franklin Street, 8th Floor Boston, MA 02110 USA Phone: +1 617 502 5300 Fax: +1 617 502 5301 www.luxresearchinc.com

Thank you

Ory ZikVP of Analyticsory.zik@luxresearchinc.com+1 617 943 3215